for a Child's or Grandchild's College
Transcript, 2 minutes 55 seconds, for use during week of March
Description: Penny and Susan discuss investing for college
Announcer: Invest Wisely comes to you from Iowa State University
Extension through a grant from the Investor Protection trust,
providing investor education on the web at: investorprotection.org.
Susan: Penny, one of my goals is helping my granddaughter pay
Penny: That’s a good goal, Susan. How old is your
Susan: She’s just turned 6.
Penny: The younger your granddaughter is and, thus, the farther
from college, the more risk you can take in your investments. At
this stage, with college still over ten years away, you might
consider investing money in stock and stock mutual funds.
Susan: Aren’t stocks going down right now?
Penny: You can expect that the stock market will decrease some
years, like it’s doing now, but historically stocks have
earned more than other investment categories so it can be a good
investment depending on your goals and your timeline.
Susan: As my granddaughter gets older and it’s closer
to the time she’ll actually attend college, what kinds
of changes should I make to my investments?
Penny: When you have fewer than five years until your granddaughter
will be making her first tuition payment, you’ll want to
reduce your risk by gradually moving your money from stocks to
Susan: So the next few years, I should include stocks or stock
mutual funds as I save toward my granddaughter’s college
Penny: Then, as your granddaughter enters her teens, you should
begin shifting over to bonds, certificates of deposit, or money
Susan: In addition to thinking about where to invest, should
I also be thinking about taxes on the earnings from these investments?
Penny: There are custodial accounts, known as Uniform Transfers
to Minors Act or Uniform Gifts to Minors Acts accounts, where
you would invest in your granddaughter’s name. There
are also Coverdell Education Savings Accounts and 529 savings
plans, which are offered by most states. Each of these
have advantages for you and your granddaughter and can impact
the taxes you pay.
Susan: Thank you, Penny. I’m going to take a look
at my current investments and see what adjustments I can make
toward this goal. I’d like to come back and visit
with you in more detail about the Uniform Gifts to Minors accounts,
Coverdell accounts, and 529 savings plans, particularly
about their tax implications.
Penny: That sounds great, Susan. And remember, for more
information visit the ISU Extension website at extension.iastate.edu
and look for ‘Invest Wisely.’